Norges Bank Investment Management (NBIM) recently published a discussion note, “Drivers of Listed and Unlisted Real Estate Returns,” which analyzes the drivers of U.S. public and private real estate returns and evaluates real estate exposures in the context of a diversified investment portfolio. Its primary findings include:
- Differences between public and private real estate diminish over longer terms. Total return correlations between public and private real estate increase as return horizons lengthen. At the same time, their correlations with the broader equity market converge and are lower with longer horizons.
- Both public and private real estate hedge inflation risk, while equity and fixed income portfolios tend to be more exposed to this risk. Real estate’s inflation hedging ability should increase its appeal with long-term investors. It also further supports the case for a strategic real estate allocation in a diversified equity and fixed income portfolio.
In a recent Top1000Funds.com article, Mie Caroline Holstad, NBIM’s CIO of real assets, discussed NBIM’s real estate investment strategy where public and private real estate are managed as one portfolio. She noted that NBIM does not consider listed real estate as being tactical in the market, but rather considers public and private real estate assets as part of one portfolio.
“In the long term, they behave more or less the same and we are agnostic to how we invest,” Holstad said. “So, we can enter the market in the way we think makes the most sense for the fund and is efficient.”
To read the full study, "Drivers of Listed and Unlisted Real Estate Returns," visit NBIM's website (pdf).